Interview of the week

Franz FUCHS, Member of the Managing Board VIG, President of the Supervisory Council of ASIROM VIG

I think that when it comes to the MTPL business our objective is the security of our insured because, if we are leaking money due to highly insufficient premiums, sooner or later the financial solidity of the insurance company will become questionable.

XPRIMM: Has the financial crisis changed the way in which VIG approaches the CEE markets and especially Romania?Franz FUCHS:
No, not at all. We have faced in various countries a certain political
and economical impact and we are used to being in similar situations.
The Romanian situation is tougher and, by the size of our investment
here, a more potent one. We are not happy about the overall development,
but we know that this country is undergoing severe changes on this
economic environment. We know it will take time, and we don't believe
that in 1-2 years the recovery will be done. This is not feasible. It
will take time, but time is something that we have. We have enough
experience to deal with difficult situations and we have started these
strategic and structural changes in our group in Romania - the merger,
for example, so we have been a little bit prepared for this situation,
but, like everybody, we have underestimated the magnitude of this
economic drop. In 2-3 years these things will calm down and I see a
positive outlook for the CEE countries.

XPRIMM: We have recently seen the financial results of the VIG Group and in Romania you reported a 16% decrease...F.F.:
We don't see Romania as a black sheep. We have invested in more than 50
companies and, so far, during its life cycle, a company in a country
goes up and down. Unfortunately it seems to go more downward in Romania
than we have expected. If you have a portfolio like ours, with 50
companies, you balance something - we have companies where we have much
better results than what was expected. We have an extremely solid
financial background and we are not changing our strategic approach
because of problems in one country. We are doing nothing else but
insurance and only in the CEE countries. Romania is an important country
in the long run and in 5 years we will look back and we will see that
we have gained momentum out of this situation. Unluckily not everybody
is treating this country professional enough and cares for necessary
changes. So we have the market involvement, on the one hand, the
political situation, on the other - plus that the insurance industry
itself is not fighting shoulder to shoulder to get on the right
direction... We also have a fierce competition: a price war in the
current economic situation is completely stupid. And that is why we have
taken our hands off the MTPL motor pricing fights.

XPRIMM: What are, in your opinion, the 3 main issues which affect the development of the market? F.F.:
The first is the economy as such - if profit is not invested in
projects, wealth is not growing and people take money out of the
country. All in all, this is affecting the insurance market. The second
element is that we have not so solid legal environment in the insurance
industry. The treatment of claims, the bodily injuries - we cannot
foresee easily enough how much we have to pay, sooner or later, for any
claim. We are suffering from foreign claims, because there are millions
of people living abroad, having claims there, and, this is not a
surprise, the transport is pretty much relocated in Romania - the
European transport industry, because it is so cheap: the insurance
industry is selling policies for a few hundred or few thousands RON as
compared with a few thousands EUR in Europe. There is a real price war
in the motor insurance field. This situation is really bullshit! To have
a contract of 150 or 250 RON on motor insurance doesn't make sense at
all.

XPRIMM: Do you encounter these problems in other CEE markets as well or is the Romanian market special?F.F.: The
economies dropped in a couple of countries, but not as much as here.
The problem of increasing foreign claims is a solid one in Romania and
visible in the other countries, because in CEE we see much more tourism.
We have this phenomenon: the transport industry has shifted from the
old Europe to the new Europe in emerging countries. So we have low
prices, high commissions - these issues appear in all countries. There
are two different reactions if you want to resist on the market - one is
to restructure and to reduce your expenses to get the economic benefit
within the company, and the second one is start a fierce competition,
but fierce competition does not work. If all the environment in the
insurance industry would be fine from the claims point of view, foreign
claims and bodily injuries than you can start a war.XPRIMM: During the XPRIMM Forecast Meeting most of the CEO stated that the MTPL tariffs will increase in 2013. Can you comment on that?F.F.:
I think that when it comes to the MTPL business our objective is the
security of our insured because, if we are leaking money due to highly
insufficient premiums, sooner or later the financial solidity of the
insurance company will become questionable. And what is worrying us is
that we took hands off this price dumping in MTPL and saved the insured
but now we have with three companies a concentration of MTPL business of
75%. Considering this, if anything happened, the whole industry would
suffer, so our interest is that the authorities undertake all the steps
to protect all the insurance companies - this is not playing with one's
money, is playing with the money of all people and then all the other
insurance companies suffer. Others that pay solid claims will suffer, so
this scenario is far too negative to risk and, in Europe, the European
rule says that the market concentration is about 30-35% and more is not
allowed... so the Competition Council should act because 75% is an
extreme market concentration. And I appreciate very much the initiative
of the CSA saying that we have to have over 90% combined ratio in the
calculation. But I would like to see the calculation from the others.

In
MTPL, the clients say "I don't care for the prices because if a third
party gets damaged the insurer has to pay". If the insurance company
cannot pay, is there a danger that I myself, causing the claim get
liable? And the damaged part might say: "I come to you because you
didn't pay enough for your insurance". I think CSA imposed the right
direction but than we have to prove that those things are ok. Then there
is the question of reinsurance. We are covering everything ... but I
don't know the reinsurance policy of the other companies. If they have a
prudent reinsurance policy and the reinsurer is paying all these huge
losses, then I say all my statements are taken away.

Maybe we
are too prudent in these aspects and we are too conservative and pay too
much for reinsurance, but there are also companies that act quite the
opposite of this.

XPRIMM: Was
your multibrand strategy affected by the economic crisis? Was the
merger between OMNIASIG and BCR Asigurari part of the plan?F.F.:
We don't need more companies. We saw that we started all the sales a
bit lower than it is necessary and that we have to be careful not to
cannibalize too much in your own companies. In bigger markets we have a
maximum of two strong companies. If they had been small, focused on
certain client segments or targets, certain target groups, we would have
kept them. But in this case we had very similar, big networks and two
companies. We managed this but it does not compensate the negative
results on MTPL at all.

As far as the management's performance in
Romania is concerned, it is always the question of how one perceives
these things. We are not happy with the overall performance in Romania;
we can't be, because we expected something different. If you look at how
the management is performing versus the market we can see that this is
quite well done, how the managers have managed the merger of the two
companies in one year - it was heavy, but we did it - even though we had
many hundreds jobs to handle, we moved two organizations together. We
don't know many countries that have managed this in one year, so from
this point of view it was done extremely good. We hope the results will
come back to place in non-life as in life insurance we perform quite
well thanks to our own networks.XPRIMM: Regarding
the mandatory household insurance scheme, there have been a lot of
legislation changes - nothing is certain at the moment. Is VIG
interested in joining PAID? F.F.: No, we have no
interest to become a shareholder of PAID, especially given these "in and
out and new and old and allowed and not allowed" messages that are
completely irritating the clients as well as the potential investors -
like we would be. We are supporting the liberalism. If it is really a
Nat Cat Pool like it exists in other countries and that is organized by
professional insurance calculations with professional insurers behind -
this is something we would do. We need very clear rules where we are
investing, not for half a year but for many years.

For the
insurance industry, it is very clear that the financial solidity is most
decisive for the future, price war never helps this is a short 2-3
years it is short term temptation and long term losses, heavy losses. It
would be good if we get more professional in all the statements towards
the clients. This discussion about PAID is an extremely negative
example. This is an example of how not to do it, because sales and
clients get completely confused and I cannot imagine that any agent is
able to explain to the client what happens there, and then, even if one
can explain it, there are 50 pages of conditions. I think that we have
to invest in the quality of our people and also in order to get
credibility back from our clients - because we have lost credibility in
the last 3 years. We wish the economy start growing and support all this
development. If the environment is different, more people will stay and
will have a different development in this country.XPRIMM: What are the main things that you would like to happen in the Romanian market in 2013?F.F.:
I want the Authorities to consult the books of all insurance companies
and make clear what must be done in the next 2-3 years in order to have
financial stability in the industry. I wish Romania gets back to
industry development, maybe to use more the European support if
possible. I guess politically it gets more stable and this is positive,
and that the economy started growing again and stopped declining and
people return in this country and contribute to development.

I
think 2013 is key for our industry. We reached the bottom and I know a
couple of shareholders that would say never ever go for any other losses
on MTPL.